UNCTAD GLOBAL COMMODITIES FORUM
13-14 April 2015
Commodities and terms of trade from a really
long-term perspective
By
Ms. Mariangela Parra-Lancourt
United Nations
The views expressed are those of the author and do not necessarily reflect
the views of UNCTAD.
GLOBAL COMMODITIES FORUM
COMMODITIES AND TERMS OF TRADE
FROM A REALLY LONG-TERM
PERSPECTIVE
MARIANGELA PARRA-LANCOURT
UNITED NATIONS
Geneva, April 14, 2015
REAL OIL PRICES INCREASED
THREEFOLD SINCE 1999
NON-OIL COMMODITY PRICES JUST
RECOVERED, DOUBLING
METALS LED THE GROUP
PUTTING IT IN PERSPECTIVE
METALS REMAINED DEPRESSED
AFTER 1921
TROPICAL COMMODITIES ARE THE
MOST AFFECTED IN BUSTS
STEPWISE DECLINE IN NON-OIL COMMODITY PRICES
Ocampo-Parra 2010
VOLATILITY AND CUMULATIVE DECLINE
 Cashin and McDermott (2002) found a
downward trend of 1.3% per year. Oddly
enough, they interpreted it as small compared to
the variability of prices, even though it translates
into a cumulative decline of 75%!!! over 18621999
 The far-reaching changes that the world
economy underwent around 1920 and again
around 1979 led to a stepwise deterioration
reflected in roughly a halving of real commodity
prices
OCAMPO-PARRA 2010: EVIDENCE
 The largest price drops followed, with a lag, the
two major slowdowns in the industrialized
economies’ long-term growth rates during the
First World War and in 1973, respectively
 This reflects the crucial role that world economic
growth has as a determinant of the commodity
terms of trade.
 Will the Great Recession and recent
deceleration of emerging markets be followed by
large drops? Too early to know, but if history is
any indication it may well be the case
ERTEN-OCAMPO (2012):
OVERLAPPING SUPER CYCLES
Super Cycle Components for Non-oil Subindices
0.4
Super Cycle Components for Non-oil and Oil Prices
0.8
0.3
0.6
0.2
0.4
0.1
0.2
0.0
0.0
-0.1
-0.2
-0.2
-0.3
-0.4
-0.4
-0.6
-0.5
1875
1900
1925
1950
1975
2000
-0.8
1875
Non-tropical super cycle
Metals super cycle
1900
1925
1950
1975
2000
Tropical super cycle
Non-oil total super cycle
Oil super cycle
WORLD ECONOMIC ACTIVITY IS A STRONG
PREDICTOR OF COMMODITY PRICES
Super Cycle Components, Global Output and Total Non-oil Commodity Prices
(Log scaling)
.2
Super Cycle Components, Global Output and Metal Prices
(Log scaling)
.3
.2
.1
0.100
.1
0.075
.0
0.050
-.1
0.025
-.2
0.000
-.3
-0.025
-.4
-0.050
-0.050
-.5
-0.075
-0.075
0.100
.0
0.075
0.050
-.1
0.025
-.2
0.000
-0.025
-.3
-0.100
-0.100
1875
1900
1925
1950
1975
OECD GDP (left axis)
World GDP (left axis)
Total Non-oil Commodity Prices (right axis)
2000
1875
1900
1925
1950
1975
OECD GDP (left axis)
World GDP (left axis)
Metal Prices (right axis)
2000
CONCLUSIONS: ERTEN-OCAMPO (2012)
• A major characteristic of commodity prices is 30-40
year-long super cycles, overlapping significantly
across sub-indices (including oil since the 1950s).
• The amplitudes vary between 20-40 percent from
long-run trend: tropical agriculture exhibits supercycles with greater amplitude.
• The mean of each super-cycle for non-fuel
commodities has a tendency to be lower than
previous one, a step-wise deterioration over
time.
CONCLUSIONS: ERTEN-OCAMPO (2012)
• Commodity price boom could have lasted only if China
and other major developing countries were capable of
delinking from slow growth in developed countries.
• Commodity-dependent countries should be aware of
price cycles
• Develop policies to take advantage of the expansionary
phases
• While taking precautionary action against the contraction
phases
• Step-wise deterioration underlines the importance of
diversification.
Diversify towards what?
OCAMPO-PARRA (2006)
TWO TRADITIONAL EXPORT STRATEGIES AND
FALLACY OF COMPOSITION
1.
2.
Increasing market shares in sectors where a
specific country has an established position
Diversifying into higher technology products
The actual strategy of an individual country may involve a mix between
them


Individual countries can succeed in any of these
strategies
As a group, developing countries can only succeed
in the first if developed countries lose market
shares
Without protectionism and if the demand is elastic enough
THE TWO VARIANTS OF THE
PREBISCH-SINGER HYPOTHESIS
1.
Different income-elasticities of demand for
commodities vs. manufactures, due to changes in
the structure of production/demand:
 applies only to goods and services that exhibit a low
income-elasticity of demand / what matters is the
goods and services being traded
2. Asymmetries in the structure of labor markets
generate unequal distribution of the benefits of
technical progress:
 applies to all goods and services produced by
developing countries / what matters is where they
are produced
GLOBAL VALUE CHAINS HAVE BEEN INSTRUMENTAL
IN COMMODITIZATION OF MANUFACTURES
WITH US CPI THE CUMULATIVE FALL HAS
BEEN EVEN MORE PRONOUNCED
A THIRD STRATEGY?
• Trade in tasks offer opportunities to developing
countries
• Trade facilitation is needed but active policies are
crucial
• Building production capabilities that can be used in
similar products
• Accompanied by incentives and regulations to
avoid footloose and exploitative interactions
• Avoid race to the bottom in taxes and regulation
• Control trade misinvoicing: Commercial illicit financial flows
(including tax evasion, trade and services mis-pricing and transfer
pricing by multinational corporations) account for the largest
proportion of illicit financial flows in Africa
SUMMARY
1. The recent boom was much more pronounced for
oil and metals.
2. Analysis of the Prebisch-Singer hypothesis follow
the evolution of time-series econometrics
3. Commodity prices decreased in a stepwise
fashion in the twentieth century
4. Tropical commodities (banana, cocoa, coffee, jute,
palmoil, rice, rubber, sugar, tea)
5. Volatility is high, but should not let us forget the
decrease in commodity price levels
SUMMARY
6. Super cycles analysis confirms stepwise
deterioration
7. World economic activity is a strong predictor of
commodity prices
8. Diversification is advised but diversify towards
what?
 Increasing market shares in established positions
 Diversifying into higher technology products
 Global value chains?
GLOBAL COMMODITIES FORUM
COMMODITIES AND TERMS OF TRADE
FROM A REALLY LONG-TERM
PERSPECTIVE
MARIANGELA PARRA-LANCOURT
UNITED NATIONS
parra@un.org
1(212)9634690
Geneva, April 14, 2015